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End of the road for that perk of the job?

Mondeoman

End of the road for Mondeo Man?

In would appear that the company car is being taxed out of existence, whether it be you’re going for a low emissions or a high emissions vehicle, and it’s rapidly getting to the point of just not being worth it anymore.

In the small print of this year’s Budget announcements, HMRC provided the figures that form the basis for this benefit to be taxed right up to the 2018/19 tax year, as the government announce them early and then legislate the following year.

Former AccountingWEB editor and tax expert Rebecca Benneyworth commented, “Basically it’s the direction of travel, forgive the pun,” she said. “What’s going to happen is that tax on company cars is set to rise really quite markedly over the next few years. Oddly, and this is perverse, but almost the worst to lose out from it are people who have gone for a low emissions car.”

To give you an example; a client of mine who is Director of her own limited company, bought herself a convertible Smart car, which has a conventional engine with very low emissions (It emits 82 grams CO2 per kilometre and is currently taxed at 11.5% of list price).

It’s a moderately cheap car to buy brand new, and she actually bought it because it’s very low emissions. However, by the end of the period we’ve got figures for (i.e. to the 2018/19 tax year) the level of tax will rise to a whopping 19% of list price. This will mean that her benefit-in-kind charge is practically going to double.

To illustrate the point further, I’ll give you another scenario involving a fully electric car, the Nissan Leaf, which is about as eco-friendly as you can get.

If you’re doing a lot of miles in a company car, then it’s got some major limitations because the range on it is not that brilliant. But despite a £5,000 government grant towards buying one, the other downside is electric cars are so much more expensive and you are taxed on the full list price.

However, at the moment the Government is allowing a concession to reduce the UK’s carbon emissions which means that the benefit-in-kind charge you pay has been reduced to zero. Unfortunately in the three years to 2018/19 the benefit-in-kind charge will shoot up to 11%.

Another example is the Vauxhall Ampera, a popular fleet car, which is a very efficient hybrid that only emits about 30 grams CO2 per kilometre. Again it has a high list price, but the benefit in kind is basically shooting up in the coming years.

Having studied the new rules coming in next April, perversely the only people who are not seeing huge rises in their tax bills for having a company car are those people who have got a big car, such as the ubiquitous Chelsea tractor, the Range Rover. The current owners of these types of car are already paying a lot of tax, but their tax will not be going up, presumably because they’re off the top of the scale already.

Rebecca Benneyworth has calculated that the Government is set to rake in an additional £250m a year in car tax as a result of the changes.

A Potential Solution

In my opinion, the solution to this issue, particularly if you’re not a high mileage business driver, is to give up your company car and charge 45p a mile for your personal car, which is really the only sensible solution for someone in this position.

However it’s an even tougher decision for someone who does a lot of miles, which potentially affects a significant number of my clients. This type of driver who does a large number of business miles, say 20,000 plus, the 45p a mile plus 25p after 10,000 isn’t really going to cover the business motoring costs because of the depreciation on the car.

If you buy your own car to do that kind of mileage in, you’re going to lose money hand over fist. You’ve lost out and your only crime is to drive for work.

The answer, I must reluctantly admit, is some kind of light commercial vehicle, such as a van.

This is because the benefit-in-kind for this type of vehicle is around £3,000 p.a. and if you’re doing silly miles, i.e. doing 40,000 miles a year plus, then leasing is not an option so you’re not left with a lot of choice. It’s these drivers that I feel extremely sorry for, because they don’t really have a natural home and probably a van is the only thing for them.

In truth, there probably isn’t much of an actual benefit in the normal sense of the word, to somebody who’s got a company car and is doing that many miles a lot of miles and yet they are being taxed an absolute fortune for it. The writing is on the wall and I feel very sorry for these individuals.

There is clearly a policy blind spot at the Treasury on this issue and they seem to have forgotten that in order to do business some people have to drive. What they’re in danger of doing is taxing these individuals to a point where they have to seriously consider getting a different job, but then when did these Whitehall mandarins ever live in the real world.

If as a result of reading this article you reluctantly decide to swallow your pride and buy a light commercial, you should consider something like the Ford Ranger or the Toyota Hilux SR5 (Sport Rally 5-Speed) so beloved by Somali bandits and rebel armies the world over. Once inside the plush cabin, indistinguishable from a good quality family saloon, you wouldn’t know you were in a pick-up and the sports versions will probably blast the average rep’s car off the road (apologies for the pun!) and as an added bonus, your mates may well be impressed with your macho muscle car; worth a thought, don’t you think!


 

If any of you would like more detailed information on any aspect of Company Car Tax, send me an e-mail and I’ll be pleased to advise further.


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